Ann Arbor (Informed Comment) – Globally, investors will sink $1.7 trillion into low-carbon energy this year — for the first time more than will be invested in fossil fuels, according to the International Energy Agency.
Fatih Birol, the Executive Director of the IEA, said, “For every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy. Five years ago, this ratio was one-to-one. One shining example is investment in solar, which is set to overtake the amount of investment going into oil production for the first time.”
Significantly more Final Investment Decisions (FID) for solar were reached by firms and governments last year, coming to $180 billion, an increase of 1/5 over 2021.
Photo by Moritz Kindler on Unsplash
People aren’t just investing in low-carbon power generation, though that investment is up 24% year over year, but also in electric vehicles and heat pumps. Incremental spending on EVs has more than doubled since 2021, projected to come to $130 billion this year. Worldwide, heat pump sales have experienced double-digit increases in the past two years.
Governments are also investing in infrastructure, big time. This is necessary because in many countries solar or wind power is generated in places distant from the big cities where people live. High density wires need to be laid to transmit that power.
In the US, governments and companies invested nearly $90 billion in 2022 on upgrading older infrastructure, an increase of 7% year over year. Europe spent $65 billion in this area, also seeing a 7% increase. In just the second half of 2022, China invested $22 billion in these sorts of project.
California alone, I might mention, has just decided to put $7.3 billion into building out a network of high-voltage transmission wires connecting various areas of the state with one another and reaching out to New Mexico, Arizona and other suppliers of wind and solar power. The Golden State expects that these 45 projects will permit the production of 17 gigawatts of new solar in California and neighboring states, 1 gigawatt of geothermal power, and 8 megawatts of wind in the state and in New Mexico and Wyoming.
As for batteries, in 2022 in the US, China and Europe, $20 billion was invested in battery storage. Another $2 billion was spent in the rest of the world. Chinese spending on battery storage tripled last year.
The Biden Administration’s Inflation Reduction Act is set to produce $24 billion in investment in electric vehicles, batteries and energy infrastructure, and that isn’t even counting the tax credits on offer for all those things.
Birol’s report doesn’t pull punches about the bad news. The big oil, gas and coal companies are only making about 5% of their investments in green energy, contrary to what they keep implying in those duplicitous green-washing TV ads.
They do seems to realize they have a stranded asset, since they are only plowing about half of their profits into developing new petroleum, gas and coal production. They are, however investing enough in the fossil fuels, especially fossil gas, that they are a major impediment to the world achieving its carbon reduction goals for 2030.
The Ukraine War has played a double role here. On the one hand, it helped flood lots more money into renewables as governments in Europe sought to escape from the energy price spikes attendant on the war. On the other, it spooked a lot of European governments into a strategy of “all of the above,” in their search for energy security. Hence, a lot of investment is being made in Liquefied Natural Gas and its infrastructure, since it can be shipped around the world in container ships now and doesn’t need new pipelines.
The global south is not making nearly as much progress on green energy as the richer north, which will be a problem down the road if this trend continues.
Still, a world in which low-carbon energy investments outstrip investments in fossil fuels by 1.7 to 1 is a whole new world we’ve never seen before. The transition to clean energy may not be happening quite fast enough to meet our Paris goals, but it is definitely happening, and on a massive scale.
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